In the recent case of BMCE Bank International plc v. Phoenix Commodities PVT Ltd and another [2018] EWHC 3380 (Comm), the Commercial Court refused an application for an otherwise order under CPR 3.14 following a solicitor's failure to file a costs budget on time. The offer of a solicitor's undertaking to pay the costs thrown away of the costs and case management conference (CCMC) and of any subsequent CCMC was not a "trump card". The defendants will now be treated as having filed a costs budget comprising only applicable court fees.
Background
The parties were required to file and serve costs budgets by 27 September 2018, being 21 days before the CCMC. The claimant complied. The defendants did not file and serve their costs budget until 11 October 2018. The claimant's solicitor drew the defendants' solicitor's attention to the late filing and reserved their client's position. Due to the late service of the defendants' costs budget, no budget discussion reports (which were due to be filed by 12 October 2018) were filed.
CPR 3.14 provides that "unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees".
Skeleton arguments were filed on 18 October 2018, the day before the CCMC. At no stage prior to lodging the defendants' skeleton argument was any application made or foreshadowed for an "otherwise order" under CPR 3.14 nor indeed was it referred to in the skeleton argument itself, which addressed case management issues and the claimant's costs budget.
In the claimant's skeleton argument, counsel made it clear that any application for an otherwise order by the defendants would be opposed and argued that the default position under CPR 3.14 should apply.
Application for relief
The CCMC was listed for 11.30am. The application for relief and supporting statement of the defendants' solicitor was received by the court at 9.05am and the supporting supplemental skeleton argument was served on the claimant's counsel at 10.00am. The judge did not hear about the application until the case was called, necessitating that he rise to read the supporting statement and skeleton argument. The CCMC therefore commenced at 11.45am and until approximately 1.10pm the judge dealt with the defendants' application.
When considering an application under CPR 3.14, the court is required to consider all the circumstances of the case so as to deal justly with the application, including the need for litigation to be conducted efficiently and at proportionate costs and to enforce compliance with rules, practice directions and orders.
Whilst an application under CPR 3.14 is not strictly an application for relief from sanctions under CPR 3.9, it is well established, and was accepted by the parties, that the same considerations apply. The leading authority on relief from sanctions remains Denton v. TH White Limited [2014] 1 WLR 3926, which established the three-stage test to be adopted by the court:
- first, the seriousness and significance of a breach should be evaluated;
- secondly, the reason for breach should be considered; and
- thirdly, in every case, the court should consider all the circumstances of the case so as to enable it to deal justly with the application.
The defendants' solicitor accepted that it was a serious breach and there was no good reason for it; it was a mere oversight on the part of the solicitor, who was overseas on business at the time the costs budget was to be filed. It was argued that the breach had no serious or adverse impact upon the proceedings or procedural timetable. The judge disagreed. He considered the breach to be not only serious but also significant given it had caused considerable inconvenience to the court and other court users. There had been no opportunity to consider the application in advance of the CCMC and almost the entirety of the time allocated to the CCMC had been spent addressing relief from sanctions. If relief was granted the inevitable consequence would be that a further CCMC would be required to address the defendants' costs budget, unless it could be agreed by the parties.
The judge noted that the solicitor "took his eye off the ball" and whilst it was not deliberate (which would have been an aggravating factor) there was no good reason for his failure to file the budget on time.
In considering all of the circumstances of the case, the effect of the late filing was that the litigation had not been conducted efficiently. Only through the goodwill of the court could the CCMC be concluded that afternoon, taking up a considerable amount of court time affecting not only the parties but the court and other court users. It was a very serious breach of a rule with very clear consequences for failure. The judge noted that a relevant consideration was the failure by the defendants to make their application promptly.
The defendants' solicitor had offered to provide an undertaking to cover on an indemnity basis both parties' costs thrown away of the CCMC, and costs of any further CCMC. It was argued that the effect of the undertaking would be that the claimant would not suffer prejudice by reason of the breach (or at least not as much prejudice as would otherwise be the case). The judge was of the view that, whilst reduced, some prejudice would still be suffered by the claimant, as indeed it would be by the court and other court users.
The judge noted that it is important to send a clear and consistent message that there should be compliance with rules, practice directions and orders of the court. This is necessary so that litigation can be conducted efficiently and so that court resources can be used and deployed efficiently. If a party could simply pay costs thrown away resulting in a finding that no prejudice is suffered the effect of the principles of CPR 3.9 would be lost. The offer of the undertaking was not a "trump card" nor did it outweigh other factors; it was to be taken into account in considering all the circumstances of the case.
The judge was not moved by the claimant's submissions to compare the length of delay in filing the defendants' costs budget with the delay in other cases. He considered only limited, if any, assistance could be gained by looking at other cases, save that it is important that a consistent message is sent in relation to compliance with the rules on costs budgeting, whilst bearing in mind that every case turns on its own merits and circumstances.
Looking at all the circumstances of the case, in particular the fact that the breach was serious and significant, there was no good reason and the application had not been made promptly, the judge held it was inappropriate to give relief from sanctions. He found there was a need to enforce compliance with the rules in relation to costs budgeting and the consequences of failure under CPR 3.14 should apply. The defendants will be treated as having filed a budget comprising applicable court fees.
Comment
This case is a reminder of the importance of complying with costs management rules and the stark reality for parties if they fail to file a costs budget on time. It provides a useful summary of the three-stage Denton test to be applied on a relief from sanctions application. It also demonstrates that a defaulting party should not rely on being able to obtain relief from sanctions by undertaking to pay the costs thrown away by their breach.
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